The Illusion That's the Welfare State; T. Machan

104 The Illusion That's the Welfare State by Tibor R. Machan I write this essay in a small town near Gdansk, Poland, where I am lecturing for a week on political philosophy. On my way here I stopped over in Hamburg to visit with my mother and uncle and other family members. During this visit, there was lots of talk about current geopolit ical and economic affairs. My uncle, mother, and I all hail from one of the formerly Communist coun tries, and it is fascinating to speculate on what will happen in our homeland and the other Eastern and Central European nations now that the Soviet empire has receded. It is important to stress one thing-the East has experienced not so much socialism,let alone Com munism, as a modern version of feudalism. By Marx's own account, no move toward socialism was possible in greater Russia and the nations it colonized without either a prior capitalist stage or the conquest of the West. Barring such miraculous developments, these countries could only play at socialism, even in Marxist terms.

What in fact happened here was the revival of something akin to mercantilism: the vigorous prac tice of command economics. The main difference is that mercantilism didn't denounce commerce, it merely made it public policy. In the command economy, in contrast, there is a theory that is used to guide the economy in a specificdirection, name ly, industrialization and anti-consumerism. The theoretically determined collective needs of soci ety as a whole are to be served. Tibor R. Machan teaches philosophy at Auburn Univer sity, Alabama. It is this kind of system that is to be blamed, whatever modem name is given it, for the incredi ble impoverishment of all these countries. It also may be blamed for throttling traditional ethnic and religious enmities that by now probably would have worked themselves into a more moderate tone. Instead Eastern Europe and the Soviet Union are just now experiencing what Western Europeans have largely gotten out of their systems and for which they have substituted a more-or-less liberal social order.

We may debate how best to explain recent events in Eastern Europe, and I have made my own efforts to do that. What is certain is that Poland, Hungary, Romania, and the rest are poor, as is, of course, the Soviet Union. This state of deprivation had been engineered until recently with the aid of a somewhat plausible Big Lie: that the West is a major military threat. Modem com munication technology blew that barefaced decep tion out of the water. So the political economy of austerity that command economies generate no longer could be shoved down people's throats. Thus the recent market-oriented revolution throughout the region. But what now? In the course of my discussions with relatives, my cousin Nicola argued that the East needs to transform its command system into a welfare state. Her motives had more to do with a sense of justice and compassion than with eco nomic analysis. Nevertheless, she gave expression to ideas that are being avidly considered among Eastern Europeans, mostly in response to the advice of Western experts sent there by labor unions, governments, and academic institutions.

Most of these are trying to persuade Eastern Euro pean and Soviet authorities to establish a welfare state, or what is referred to in Europe as social democracy, as a substitute for the discredited com mand economy. Social democracy amounts to the kind of order in which the bulk of the social problems of a coun try, including those arising in the economy, educa tion, arts, sciences, agriculture, industry, and tech nology, are managed by means of democratic discussion and, ultimately, a vote. In the United States, this kind of order is the democratic welfare state, although those who wishto increase its scope refer to it as economic democracy or even demo cratic socialism.It is generally believed, at least by those who aren't mere opportunists interested in political and economic power, that such a system would be more just and kind than a purely free market. A BenignAlternative? The arguments put forward are the usual ones maintaining that capitalism is callous, heartless, mean, and neglects some of the essential elements of a decent society. The free market is supposedly too individualistic and discourages community ser vice;it thrives too much on competition and too lit tle on cooperation. The welfare state is alleged to be the more humane system, and in the wake of the evident unworkability of the command econo my, a democratically administered socialismis sub mitted as the preferred alternative.

This message is being sent toward the East by many, and only a few are holding out for pure cap italism. Yet even among those who support a rad ical turn toward the free market, the most promi nent and heeded are those who assert that the need for pure capitalism is only temporary. Once a country becomes economically solvent, they argue, the welfare state may well be the more benign alternative. Janos Kornai, Hungary's foremost economist, who also teaches at Harvard University, sug gests this in his book, The Road to a Free Econ omy (W. W. Norton, 1990). He points out that the only workable solution to Eastern European woes is an immediate switch to a free market sys tem throughout the entire region. No welfare 105 state is possible in these societies, since unlike most Western countries where the welfare state has been established, these nations lack the resources to sustain welfarism.

To clarify Kornai's argument, it may be useful to draw an analogy. Kornai seems to be saying that welfarism seriously debilitates a society, much as disease weakens a livingbeing. The welfare state is unhealthy, certainly economically, but even politi cally. Still, people may be willing to put up with some drain on their productivity, and indeed may flourish in the face of heavy taxation, so long as they have a good shot at becoming prosperous and retain a hope of making further progress. Not all ailments knock out an organism; some merely produce a setback. If the basic system of private property and free trade isn't abolished, welfare states can be tolerated. As in the case of certain physical ailments, the welfare state need not be immediately disabling. Yet, as with such nonfatal ailments, the welfare state is in constant need of extra support-a permanent crutch, as it were. In the former Soviet bloc, the patients have no strength left. They must go on a disciplined regime of recuperation and cannot afford to be dragged down by the parasite of welfarism. But what about after substantial recovery?

What is crucial is that the welfare state-the likely economic outcome of economic democracy .-can carry on only while there is a source of extra strength. A good example is deficit spending, which is often a consequence of welfare programs. It subjects people, including yet unborn ones, to involuntary obligations to produce over and above their wants and needs sometime in the future. And for a while most of us will put up with this, on top of our own personal debts and liabilities. Lessonsfromthe LafferCurve But as the Laffer Curve proposes, one can tax people for only so long, to only a certain extent. If each year one is taxed just a bit more, and one can, with increased effort, recover these losses, the sys tem can last for a while. But since the welfare state tends to be perpetual and constantly expanding, there is an unavoidable result: It cannot last. It is important to remember that personally cho sen charity to those in temporary need doesn't function this way. If left to individuals and volun106 THE FREEMAN • MARCH 1992 tary groups, responding to an emergency doesn't create a constant drag on the system. Moreover, in privately responding to such emergencies there is better knowledge of who needs and deserves sup port, where the help willdo the most good, and so on. As with moral advice, so with moral support (even of the economic variety): knowledge of details is essential.

In many robust Western economies-getting less and less robust each year, however-the Laffer Curve thesis has not yet seen its full impact. After all, human beings used to endure much worse abuse than the welfare state impos es on them. They have survived-with some degree of health and wellbeing-slavery, serf dom, dictatorships, tyrannies, fascism, and even socialism. The welfare state may appear to be a mild example of political and economic misguid ance and injustice. And it makes some people feel good about themselves, even as it frees them from personal moral responsibilities by imposing a share-and-share-alike policy on their communities. We have a great opportunity for the West to learn from the experiences of the East. Unfortu nately, however, many intelligent people have become skeptics and will follow their wishes more readily than the products of logical analysis. Such analysis produced, for example, the conclu sion that socialism cannot create economic well being. Ludwig von Mises and, later, F. A. Hayek demonstrated through elaborate logical and con ceptual economic reasoning that the system will Free Markets, Free People fail. Mises did this in his book Socialism published as far back as the 1920s,followed by Hayek's ini tial scholarly development of the idea and his more popular statement in The Road to Serfdom.

Unfortunately, there is such extensive anti rationalism in Western intellectual circles that these scientific proofs tend to be widely ignored, and only major human tragedies seem to be heed ed sufficientlyto alter a course of action motivated by wishful thinking. Thus, perhaps if Eastern European societies follow Janos Kornai's advice and implement a fully free market system-not the hodgepodge mixed system we find in France, Germany, England, Japan, and the United States -it may demonstrate with factual, historical examples that welfarism is a false ideal. Sadly, millions of people are unwilling to give genuine capitalism a chance, perhaps in part because they have become so comfortable in this halfway house of the welfare state that they are scared to leave it behind. So the East may be pre vented from really fixing its problems, even though many know that without a true free mar ket they will linger in economic and cultural malaise.

Maybe, though, we won't need to find out by historical example how much of a failure the welfare state is. Maybe there are enough tough minded folks in the East, such as the Russian citi zen who was recently quoted in The New York Times: "Now there are no owners. Nothing belongs to anybody. And from that simple fact come all the problems." D IDEAS ON LIBERTY T he proper aim of economic life is an overall aim: the use of limited human and material resources in such a way as to serve most effective ly the needs and desires of all the people. This aim tends to be achieved automatically in a regime of free markets where the people's needs and desires can express themselves in price offers to which producers are forced by economic necessity to conform. When political authority, even with the best of intentions, interferes with this self-regulating flow of goods and services, it sets up chains of cause and effect which it can neither foresee nor control except by constantly widening its authority. The final outcome is a regimented society from which all objective and valid guides to human effort have vanished, along with human freedom.

- The Guaranty Survey, March 1956 107 Why Socialism Causes Pollution by Thomas J. DiLorenzo C orporations are often accused of despoil ing the environment in their quest for prof it. Free enterprise is supposedly incompat ible with environmental preservation, so that government regulation is required. Such thinking is the basis for current proposals to expand environmental regulation greatly. So many new controls have been proposed and enact ed that the late economic journalist Warren Brookes once forecast that the U.S. Environmen tal Protection Agency (EPA) could well become "the most powerful government agency on earth, involved in massive levels of economic, social, sci entific, and political spending and interference."1 But if the profit motive is the primary cause of pollution, one would not expect to find much pollution in socialist countries, such as the former Soviet Union, China, and in the former Commu nist countries of Eastern and Central Europe.